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Guest Post: Unswayed by Political Risks, Oil Companies Eye Iraq's Multibillion-Barrel Prize
Submitted by Fawzia Sheikh of oilprice.com
As multinational military forces have left Iraq, international petroleum companies have eagerly descended - seduced by the long-term potential of vast oil reserves off-limits to foreigners for decades. Yet lingering violence, legal questions and political uncertainty make doing business in this country a gamble.
In the first international oil auction held last June, widely seen as a failure, the Iraqi government awarded a firm contract to only a consortium of British Petroleum and the China National Petroleum Co. to further develop the Rumaila field over 20 years. Iraq recently forged an initial agreement with a group comprising Exxon Mobil and Royal Dutch Shell to develop the West Qurna field, and one with an ENI-led consortium of Occidental Petroleum and Korea Gas for the Zubair oil field.
Under ratified deals, firms stand to gain a mere $2 profit on each barrel added to production because the Iraqi government wants to convey “they're not going to let the oil companies take over,” said Robert Ebel, a senior adviser in the energy and national security program at the Center for Strategic and International Studies (CSIS), a Washington-based think tank.
The operator of each 20-year service contract, which may be extended for five years, “will still make a rate of return in the double digits,” said Ruba Husari, founder and editor of the Web site Iraqoilforum.com, via e-mail from Baghdad. The country’s proven oil reserves were last estimated at 115 billion barrels. These massive reservoirs, and the low costs linked to such an uncomplicated operation, essentially make it “easy oil” for firms, Husari said.
Iraq will boast some six million to 10 million barrels a day over the next several years, analysts tell Oilprice.com. This scenario illustrates why oil companies perhaps are now more willing than last summer to gain an initial foothold in the industry on the government’s strict terms and thus build a long-lasting relationship that may lead to a production-sharing contract “for some discovered-but-yet-undeveloped oil field,” Ebel said. “It’s a hopeful assumption; I don’t know how realistic it is.”
Yet as companies salivate over Iraq’s potential, legal and political issues are still problematic to doing business. The war-ravaged country's “weak and ill-defined legal structures,” and uncertain moves by the next government slated to be elected in January, may result in canceled service contracts, warned David Bender, an analyst in the Middle East practice of the Eurasia Group’s Washington office.
Through conversations with oil firms, Bender has gleaned that Iraq is probably not “quite at the point in which legal details are the most important aspect” and is focused instead on the larger political process. As a result, he said, members of a newly elected government, influenced by their own interest groups and “power politics,” may annul contracts despite the associated penalties.
Finalizing a long-awaited hydrocarbon law governing the oil industry will be a top priority of the next government, said Mishkat al-Moumin, an adjunct scholar at the Washington-based Middle East Institute and Iraq’s environment minister from 2004 to 2005. Ideally, the legislation will outline investing in new oil fields, establishing a council to manage petroleum issues and offering a mechanism allocating oil revenues, she added.
The absence of an agreement to share oil revenues with the northern Kurdistan Regional Government continues to plague Baghdad, which never recognized as legal the Kurds’ independent oil deals with smaller companies. “If you get an oil law in place, will the Kurds accept that oil law or will they say . . . ‘You’re not giving us enough share of the income that you get from our oil,” questioned Ebel, the CSIS analyst.
Although it is too early to measure the internal impact of opening up the oil industry, in five years oil money will likely flow down to ordinary Iraqis, al-Moumin predicted. The Iraqi government is now debating whether to distribute checks to citizens allocating their fair share or to broadly invest in infrastructure and services, she said.
As the central government and international companies gear up for a second oil field auction pegged for Dec. 11 to 12, Eurasia Group’s Bender expects firms this time to be undeterred by initially meager profits, and increasingly tempted by what may become “the most lucrative, exciting oil market in the world.”
This article was written by Fawzia Sheikh of OilPrice.com who focus on Fossil Fuels, Alternative Energy, Metals, Oil Prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com
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This will be hillarious when they find out that all the easy oil has already been pumped out of the system...
Especially if the field is interconnected; water preasure pumping will render the entire field useless...
The government is ALWAYS honest and open about EVERYTHING.
And while the contracts are being signed, dollars changing hands, virgins in heaven being purchased, the radical Muslim movement continues to collect and stash more and more rocks and sticks. Poppies and oil, mix them with fresh greens and onions.
Unswayed by political risk? Are these people stupid?
Mission accomplished. More than a million Iraqis murdered or displaced because their country was cursed by oil.
Yep. Oil production displaces all other activities and investment. Got that in my back yard too.
<QUOTE>The country’s proven oil reserves were last estimated at 115 billion barrels. These massive reservoirs, and the low costs linked to such an uncomplicated operation, essentially make it “easy oil” for firms, Husari said.<QUOTE>
<QUOTE>Iraq will boast some six million to 10 million barrels a day over the next several years, analysts tell Oilprice.com.<QUOTE>
These people are out of their minds. The "115 million barrels" are most likely those estimated by the ever reliable former Iraqi government or the ever reliable IEA or EIA or USGS, etc., about as reliable as the estimates of the reserves of the rest of the Middle East. Also, 6 to 10 million barrels a day?! They will never achieve that. Never. My money is on 3 million barrels a day, and that's under a perfectly stable government/society. And we all know how likely that is.
They're insane.
Its about time. I though the whole point of the war was that Bush was gonna take over the contry, then send his oil men in to suck it dry.
We get cheap oil and they get "democracy" and money to rebuild the country. The media will surely trumpet this as a win / win situation.
The oil must flow! Who is in control does not matter, they will kill those who are not. The # killed also doesn't matter, the money is too great. Perhaps another Sadam will come to power and baptize his rule with the blood of his enemies. The USA is actually stopping order from being restored by trying to create a happy friendly American multi-cultural society. Once the USA leaves, one strong man and his cronies will seize power ala Sadam and kill all others. Order will be restored by doing things the USA would put its soldiers in jail for doing and the oil will flow BIG TIME.
How much oil? That is a different question. My money is that the oil majors who are the experts on these things would not be salivating and paying bribes big time like they are currently doing unless big cheap reserves of oil were sitting out there.
Sounds like Libya, circa 2010.
American soldiers lost their lives so that the Chinese who never sent troops to Iraq can be awarded Oil contracts.
Iraq and Kuwait share an 'elephant' so massive and close to the coast that it could deliver 5,000,000 bbl/day in ten years.
It has never been touched because of politics.
As a prelude to the auctions western, state-of-the-art exploration crews were deployed across Iraq. They revised her reserves UP about double. That's not too surprising since the previous efforts to locate oil stopped forty-years ago.
Significant deposits were found all over the country, even al Anbar.
Because of her rivers Iraq can reasonably expect to extract more oil than KSA. Water flood stinks with sea water so once the initial pressure is lost KSA has inferior options. Perhaps she can purchase second hand water from Iraq, eventually.
For what it's worth Baghdad is on record stating that their revised estimates now place them above and beyond KSA. After adjusting for their quality of truth... who can say which Arab land has bragging rights.
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There is something to be said for Iraq's routing tariffs possible on the immense natural gas deposits still corked up in Kuwait and KSA. These countries, as well as Iran, are still flaring astounding amounts of gas.
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Which leads to my doubts about a near-term production crisis. Hulbert's thesis presumes that exploration and production results are greatly dictated by nature -- hence there is no arguing with the production trend.
However it must now be plain that politics and war dominate the matter. The minute the western oil majors were allowed to prospect in and around the Caspian they found elephants. If they were allowed the same commercial freedom in Russia it is reasonable to assume new elephants would pop-up in very short order.
Eventually oil production will peak. But with so much of the planet politically off limits it's impossible to project when.
BTW Orinoco ultra-heavy crude might already be economic if it were not for Chavez and his politics. As long as he calls the shots no one is going to make that move. On current trends it looks like he's busting out.
actually 115 billion barrels is likely not far off
just look at pre OPEC initial estimates minus oil produced and 115 GB is not far off
all OPEC mid east nations doubled their reserves shortly after OPEC was formed because quotas were based on reserves
Saudi Arabia has claimed 265 GB since OPEC did this, it is likely Saudi Arabia is well under 100GB left based on pre OPEC estimates and production since
this means Iraq is probably the largest remaining holder of reserves of light sweet and light sour arab oil :)
Kuwait already admitted they had less than half their reported reserves like two years ago, won't be long before Saudi Arabia will no longer be able to bluff. Once world oil demand climbs back up and there is no supply cushion it will be push come to shove time. The top 40 or so mature fields which supply the bulk of all the worlds oil are all in terminal decline. Iraq is the prize.
actually 115 billion barrels is likely not far off
just look at pre OPEC initial estimates minus oil produced and 115 GB is not far off
all OPEC mid east nations doubled their reserves shortly after OPEC was formed because quotas were based on reserves
Saudi Arabia has claimed 265 GB since OPEC did this, it is likely Saudi Arabia is well under 100GB left based on pre OPEC estimates and production since
this means Iraq is probably the largest remaining holder of reserves of light sweet and light sour arab oil :)
Kuwait already admitted they had less than half their reported reserves like two years ago, won't be long before Saudi Arabia will no longer be able to bluff. Once world oil demand climbs back up and there is no supply cushion it will be push come to shove time. The top 40 or so mature fields which supply the bulk of all the worlds oil are all in terminal decline. Iraq is the prize.
They have huge amounts of untapped oil otherwise we wouldn't be there. Oh wait no they are fighting for democracy, I almost forgot.
This piece is almost all old news ( some questionable) with the minor exception of the Dec. 11,12 auction.
Just exactly what is the point in publishing this?
Certainly a waste of time reading it.
They're worried about the legal structure?! Iraq is occupied by a country with the deepest respect for making sure people* get their money no matter what.
Though some foreign troops have departed Iraq, the extent of the US's withdrawal has been overstated by the MSM. Obama still keeps 124,000 US troops in Iraq, HIGHER than Bush's throughout his 8 years, save for themilitary contractors still figure there is large numbers.